What do onions have to do with rain and peace? At first glance, nothing. Climate change effects may be starting to feed through to our daily lives, but the social consequences remain invisible…or nearly. Onion prices in India have surged – by more than 500% since the start of the year – making the front page of the Financial Times, a striking illustration of how chain reactions work.
Onions, climate and inequalities
Drought and torrential rains in India have hammered India’s onion harvest for the last two years. This has sent prices spiralling to near unaffordable levels for what is a basic ingredient of Indian cuisine, stoking discontent among a population that already spends half its income on food*. Fertile ground for geopolitical instability and conflict.
Climate change is exacerbating inequalities, even though the UN’s Sustainable Development Goal No. 1 (No Poverty) stipulates the need to “build the resilience of the poor and those in vulnerable situations and reduce their exposure and vulnerability to climate-related extreme events” by 2030. There is also the danger of climate-driven migration which, though hard to quantify, would affect tens of millions of people each year. In a report published by Javier Solana’s office in 2008, the European Commission was already sounding the alarm on the “threat multiplier” effect of climate disturbances. We are there.
Reconciling Environment and Social issues
The arrival of physical risks linked to extreme climate events may mean lower productivity in some sectors, due to shortages and/or inflation of agricultural commodities. Supply chains are now global and it is ever harder to pin down where the companies we invest in are sourcing their supplies. Much of our work in analysing Environmental, Social and Governance (ESG) factors focuses on understanding the hidden risks that may be lurking in supply chains.
Often overlooked, the social consequences of climate change are another of many strong reasons to pursue a strategy that caps global warming at 2 degrees, a target that we are worryingly behind schedule to hit.
Sometimes, however, the remedies themselves can have substantial social side-effects. The green transition has a social cost in France, as the gilets jaunes will loudly attest. At a microeconomic scale, it poses a threat to jobs in sectors exposed to high transition risk, such as automotive or power generation. Audi, for instance, a subsidiary of Volkswagen, announced end-November that it would be shedding 9,500 jobs to invest in the electrification of its range. The OECD estimates that 30% of jobs in gas, coal and fossil-fuel powered generation could go by 2030 if countries embrace ambitious climate policies.
Social considerations should not slow the transition to a low-carbon economy as the green economy will create many new jobs. But this still implies a general shift toward professional mobility. The responsible investor, who takes a comprehensive overview of the ecosystem surrounding a company – including all stakeholders – seeks to allow for all these chain reactions, aware that if the green transition is to have the best chance of success it must be fair.
*By way of comparison, the share of income spent on farm and food products in France is 15% (French Ministry of Agricultural, 2017)
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